The Covid-19 pandemic has accelerated the digitalization of finance departments. Make sure that your tax department doesn’t lag behind.
Who is driving the digital transformation of your enterprise? In 2019, the answer to this question would have ranged from CDO (Chief Digital Officer) to (CTO) Chief Technology Officer, or even the CEO (Chief Executive Officer). In 2020, the most likely answer is Covid-19.
This answer is a perfect reflection of the ground realities. Beyond deaths and suffering, the pandemic has also accelerated digitalization of businesses. Companies are rushing to achieve this digital transformation, which would ordinarily take five years, in a much shorter time span.
As lockdowns have shut down business-as-usual practices and driven employees to work from home, companies have had little choice but to digitally empower staff and change the way they have traditionally worked.
CFOs of global organisations have reacted with alacrity to the crisis. The short-term measures include liquidity management client credit management and enhanced communication with investors.
In the medium term, 71% of respondents in a CFO Pulse Check by Boston Consulting Group identified “Cost Reduction in the Finance Function” as one of their key objectives. To reduce these costs, between 75-83% of the respondents were looking at “Process Optimization, New Ways of Working and Digitization”.
A CFO Cohort by Gartner echoed these findings. While CFOs were planning to aggressively cut costs in areas like Real Estate and Marketing, they were looking to enhance spending on IT and Sales in order to invest in growth.
Both these findings are not surprising. The speed and scale of the disruption caused by the pandemic are such that to cope with it, enterprises have had to make a-once-in-a-generation shift to new ways of working. And while how the post-Covid world will look is still uncertain, what is clear is that it will be more digital.
Since the outbreak, we have moved to leveraging technologies like Blockchain to increase efficiency of trade financing and payments.Jeremy Cheah, CFO of the Singapore-based agri-commodity trading giant Agrocorp International
Speaking at a webinar organised by Thomson Reuters, Neeraj Singhal – CFO of APAC BCD Travel, one of the world’s leading corporate travel firms, said that they have digitized entire processes to make document and workflows digital.
Deploying Tax Technology
One critical area that CFOs are looking at is transforming their tax departments by using the right technology. There are a few reasons for this. First is the fact that old methods of working are no longer feasible in a work-from-home scenario. Sharing of large excel sheets with tax data over mail would violate cyber-security protocols.
The second is that technology allows tax teams to factor in real-time financial information and latest tax laws and regulations to model different scenarios to determine their after-tax financial implications. These can range from potential tax consequences of different inventory and supply chain choices to ensuring that transfer pricing and intercompany transactions are in compliance with tax laws. These scenarios can then be converted into insights for the leadership to help in informed decision-making. All these are critical in avoiding risk of non-compliance.
The third and most important reason is that tax technology can help in saving tax leakages such as VAT overpayments. A study done a few years ago found that companies have an average error rate of 3% in their tax calculations. Most global enterprises pay 30-35% of their revenues as taxes. If that 3% error rate across these levies is corrected, it could save millions of dollars. With the right tax technology, companies will be able to better manage their tax rates across the globe.